Question 1

Piece rate pay works better when:

Accepted Answer

A)  output is harder to measure. 
B)  output is easier to measure. 
C)  quality matters a great deal. 
D)  monitoring is expensive. 
A)  output is harder to measure. 
B)  output is easier to measure. 
C)  quality matters a great deal. 
D)  monitoring is expensive.

Question 2

What are the four lessons economists have learned that are important to keep in mind when designing an incentive scheme?

Accepted Answer

You get what you pay for, but

Question 3

In order to encourage students who are concerned about their GPAs to take harder classes, professors of these classes should:

Accepted Answer

A)  grade on a curve because it increases students' incentive to study even when the material may be hard. 
B)  grade on a curve because it increases students' incentive to study even when some students in the class may be smarter than others. 
C)  not grade on a curve because grading on a curve will only serve to reduce students' incentive to study, particularly if the material is hard. 
D)  not grade on a curve because grading on a curve will only serve to attract lower-level students who are less likely to study. 
A)  grade on a curve because it increases students' incentive to study even when the material may be hard. 
B)  grade on a curve because it increases students' incentive to study even when some students in the class may be smarter than others. 
C)  not grade on a curve because grading on a curve will only serve to reduce students' incentive to study, particularly if the material is hard. 
D)  not grade on a curve because grading on a curve will only serve to attract lower-level students who are less likely to study.

Question 4

What evidence was put forth for teachers cheating on standardized tests?

Accepted Answer

A)  groups of students who had the same exact right and wrong answers 
B)  students who missed easy questions but got the hard questions right 
C)  students with high test scores in one year but who earned low test scores the next year 
D)  All of these things were found to have occurred. 
A)  groups of students who had the same exact right and wrong answers 
B)  students who missed easy questions but got the hard questions right 
C)  students with high test scores in one year but who earned low test scores the next year 
D)  All of these things were found to have occurred.

Question 5

Voters, politicians, and parents all must think about and choose incentives.

Accepted Answer

A) True 
 B)False

Question 6

A worker might prefer a(n) ______ if the quantity produced is largely affected by things outside the worker's control.

Accepted Answer

A)  piece rate system over commission pay 
B)  commission pay over a piece rate system 
C)  piece rate over an hourly wage 
D)  hourly wage over a piece rate 
A)  piece rate system over commission pay 
B)  commission pay over a piece rate system 
C)  piece rate over an hourly wage 
D)  hourly wage over a piece rate

Question 7

Environment risk in sales can be described as:

Accepted Answer

A)  the risk that an external factor such as customer preferences, recessionary pressures, or the quality of the product will depress sales. 
B)  the risk that certain members of the sales force will have better sales tactics than other members of the same sales force. 
C)  the risk that certain products will affect the availability of natural resources and the environment. 
D)  None of these answers describes environment risk. 
A)  the risk that an external factor such as customer preferences, recessionary pressures, or the quality of the product will depress sales. 
B)  the risk that certain members of the sales force will have better sales tactics than other members of the same sales force. 
C)  the risk that certain products will affect the availability of natural resources and the environment. 
D)  None of these answers describes environment risk.

Question 8

In situations where worker productivity largely depends on factors outside the worker's control (e.g., the state of the economy):

Accepted Answer

A)  piece rate systems are generally preferred to fixed salary. 
B)  workers may prefer stable pay to larger bonuses. 
C)  workers are more willing to trade-off stable pay for larger sales bonuses. 
D)  workers will see their salary increase during recessions. 
A)  piece rate systems are generally preferred to fixed salary. 
B)  workers may prefer stable pay to larger bonuses. 
C)  workers are more willing to trade-off stable pay for larger sales bonuses. 
D)  workers will see their salary increase during recessions.

Question 9

A successful organization aligns _____ with _____.

Accepted Answer

A)  self-interest; the organization's interest 
B)  self interest; the social interest 
C)  social interest; the organization's interest 
D)  manager's interest; the social interest 
A)  self-interest; the organization's interest 
B)  self interest; the social interest 
C)  social interest; the organization's interest 
D)  manager's interest; the social interest

Question 10

In Austria, everyone is automatically considered to be an organ donor unless they have signed a non-donor card. This is considered:

Accepted Answer

A)  choice architecture. 
B)  framing. 
C)  front of the store. 
D)  a nudge. 
A)  choice architecture. 
B)  framing. 
C)  front of the store. 
D)  a nudge.

Question 11

In which of the following scenarios would the average person exert the greatest effort?

Accepted Answer

A)  getting paid $100,000 to beat Tiger Woods in a round of golf 
B)  getting paid $60,000 to run a mile in under four minutes 
C)  getting paid $170,000 to knockout Cain Velasquez, a top-ranked mixed-martial arts fighter 
D)  getting paid $1,000 for every mile completed in a marathon 
A)  getting paid $100,000 to beat Tiger Woods in a round of golf 
B)  getting paid $60,000 to run a mile in under four minutes 
C)  getting paid $170,000 to knockout Cain Velasquez, a top-ranked mixed-martial arts fighter 
D)  getting paid $1,000 for every mile completed in a marathon

Question 12

Bear Stearns and Lehman Brothers went bankrupt because:

Accepted Answer

A)  their managers had an incentive to take on too much risk. 
B)  their mangers were too risk averse to try new and innovative banking products, such as credit default swaps. 
C)  compensation to top executives was based on how well their stocks performed relative to other firms. 
D)  managers feared the penalties associated with the downside risks of bad business decisions. 
A)  their managers had an incentive to take on too much risk. 
B)  their mangers were too risk averse to try new and innovative banking products, such as credit default swaps. 
C)  compensation to top executives was based on how well their stocks performed relative to other firms. 
D)  managers feared the penalties associated with the downside risks of bad business decisions.

Question 13

Corporate culture is needed to help firms incentivize what is easy to measure.

Accepted Answer

A) True 
 B)False

Question 14

Paying children money to do family chores:

Accepted Answer

A)  may reduce the child's intrinsic motivation for helping out around the house. 
B)  may increase the child's intrinsic motivation for helping out around the house. 
C)  can create environmental risk. 
D)  can create ability risk. 
A)  may reduce the child's intrinsic motivation for helping out around the house. 
B)  may increase the child's intrinsic motivation for helping out around the house. 
C)  can create environmental risk. 
D)  can create ability risk.

Question 15

It is true that incentives matter, and:

Accepted Answer

A)  getting incentives right is not a major issue. 
B)  the right incentives can be hard to figure out. 
C)  the ideal would be to remove all incentives. 
D)  using wrong incentives is better than no incentives. 
A)  getting incentives right is not a major issue. 
B)  the right incentives can be hard to figure out. 
C)  the ideal would be to remove all incentives. 
D)  using wrong incentives is better than no incentives.

Question 16

Table: Salaries
 
For the data in this table, most workers would prefer:

Accepted Answer

A)  Job A. 
B)  Job B. 
C)  Job C. 
D)  Job D. 
A)  Job A. 
B)  Job B. 
C)  Job C. 
D)  Job D.

Question 17

Pirate captains had to make sure their crew would storm the enemy vessel en masse to ensure victory. Individual crew members, however, would want to hold back and let their fellow crew mates fight. To solve help solve this problem, captains would offer bonus pay to the first member of the crew aboard the ship. What kind of incentive structure is this?

Accepted Answer

A)  hourly rates 
B)  tournaments 
C)  piece rates 
D)  corporate culture 
A)  hourly rates 
B)  tournaments 
C)  piece rates 
D)  corporate culture

Question 18

The stronger the incentives:

Accepted Answer

A)  the less it pays to invest in careful measurement and auditing. 
B)  the more it pays to invest in careful measurement and auditing. 
C)  the less important the incentive's effects. 
D)  the stronger the incentive's effects. 
A)  the less it pays to invest in careful measurement and auditing. 
B)  the more it pays to invest in careful measurement and auditing. 
C)  the less important the incentive's effects. 
D)  the stronger the incentive's effects.

Question 19

Centralized economic planning in the Soviet Union was the epitome of the top-down approach: factories received quotas from Moscow that they had to fill. Enforcing such orders was difficult since there were so many factories to monitor. For example, a nail factory might fulfill an order of 250,000 nails by making very small nails, or substandard nails. Suppose Moscow wants nails to build houses. It is actually paying for:

Accepted Answer

A)  high-quality nails. 
B)  productivity improvements. 
C)  scrap metal. 
D)  whatever could minimally qualify as a "nail." 
A)  high-quality nails. 
B)  productivity improvements. 
C)  scrap metal. 
D)  whatever could minimally qualify as a "nail."

Question 20

Giving employees shares of the company's stock is a form of:

Accepted Answer

A)  monetary motivation alone. 
B)  intrinsic and monetary motivation. 
C)  intrinsic motivation alone.. 
D)  piece rate pay. 
A)  monetary motivation alone. 
B)  intrinsic and monetary motivation. 
C)  intrinsic motivation alone.. 
D)  piece rate pay.

Exam 22: Managing Incentives

Piece rate pay works better when:

What are the four lessons economists have learned that are important to keep in mind when designing an incentive scheme?

In order to encourage students who are concerned about their GPAs to take harder classes, professors of these classes should:

What evidence was put forth for teachers cheating on standardized tests?

Voters, politicians, and parents all must think about and choose incentives.

A worker might prefer a(n) ______ if the quantity produced is largely affected by things outside the worker's control.

Environment risk in sales can be described as:

In situations where worker productivity largely depends on factors outside the worker's control (e.g., the state of the economy):

A successful organization aligns _____ with _____.

In Austria, everyone is automatically considered to be an organ donor unless they have signed a non-donor card. This is considered:

In which of the following scenarios would the average person exert the greatest effort?

Bear Stearns and Lehman Brothers went bankrupt because:

Corporate culture is needed to help firms incentivize what is easy to measure.

Paying children money to do family chores:

It is true that incentives matter, and:

Table: Salaries For the data in this table, most workers would prefer:

The stronger the incentives:

Giving employees shares of the company's stock is a form of:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

A successful organization aligns _ with _.